Daily Times

News reports, so far unchallenged by the government, that lack of funds is already causing the Public Sector Development Program (PSDP) to be slashed, just two months into the new fiscal, are very disturbing and indicate that the Balance of Payments (BoP) position might be under more stress than the government is willing to acknowledge. It appears that the ministry of planning, development and special initiatives has written letters to other ministries to exclude non-essential development projects from the Rs900 billion PSDP for the year. It’s also being said that the ministry of water resources has already excluded five development projects in Balochistan from the list.

This is very typical. It is also precisely why there weren’t too many takers for the argument that PSDP allocation for this year was stretched to Rs900 billion, even though the development budget is never ever spent as projected in this country, because the government was committed to expand the economy out of all its troubles. And it’s also very typical that such cuts tend to start from the least developed areas which need them the most; as in this case it has begun from Balochistan.

The government’s reserves are clearly coming under pressure for a couple of reasons. One, its efforts to stimulate exports are also inflating the import bill because of machinery and spare parts, etc, that have to be imported to feed production. And with imports outpacing exports and the gap constantly widening, it is only natural to have to divert development funds sooner or later. Two, the epic collapse of the rupee is also forcing the state bank into the market now and then to prevent an outright riot, something that cannot be done indefinitely but one which does eat up the reserves rather quickly for the duration of time that it is done. And three, the government has been forced into subsidising a number of sectors while the state bank has been offering concessionary loans to keep the economy going through the worst of the pandemic, which also puts very obvious downward pressure on reserves.

All in all, then, the time has come when the government starts scratching its ahead about the way forward. The expansionary budget got the business community smiling from ear to ear, but such sentiment can change very quickly once the money stops flowing. And without adequate development funds, it will not be possible to keep up the momentum of the economy. Therefore the sooner the government clarifies the present situation the better for everybody concerned, especially businesses who had been expanding and spending to take advantage of the expansionary environment.. *